Consolidation 'no longer a major reason for loaning'

People are increasingly taking out a personal loan in order to renovate their home, new research shows.

Debt consolidation is now a much less significant reason for people taking out personal loans than it was two years ago.

According to new research from a supermarket bank, borrowers are now choosing to pay off their debts rather than consolidate them. In 2009, the rate of money taken out in Sainsbury's Finance personal loans solely for debt consolidation purposes was one pound in every 50, whereas in 2008 this figure was one in 19 and in 2007 one in 13.

The study suggests that large purchases such as home improvements and cars are now the most common reason for people to take out a personal loan. According to Sainsbury's, such a decline in debt consolidation may be because of the difficult economic climate causing people to try and pay off their debts instead of consolidating them in order to improve their personal finance situation.

Steven Baillie, head of loans at Sainsbury's Finance, said: "Debt consolidation has always been one of the most common reasons for people to take out a personal loan, but more and more customers are now taking out loans for other reasons."

By Sam Williams